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Fired CFO Cannot Pursue False Claims Act Lawsuit

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A local agency chief financial officer (CFO) cannot sue for retaliation under the False Claims Act even though she was fired after complaining about the results of a state audit, the 7th U.S. Circuit Court of Appeals ruled.

The Fox Valley Workforce Development Board provides job training services in the Wisconsin counties of Calumet, Fond du Lac, Green Lake, Outagamie, Waupaca, Waushara and Winnebago. Under applicable federal rules, development boards provide services through subcontractors selected by competitive bidding. In providing adult and dislocated worker services, the board contracted to a firm known as Career Pros, which dissolved in the summer of 2004. After Career Pros dissolved, the board created its own subsidiary, Workforce Economics Inc., to hire Career Pros' personnel and continue administering services. In 2003, the board hired LuAnn Ziebell as an executive assistant, and promoted her to finance director the next year.

The board's subsidiary ran afoul of federal rules when implementing the Workforce Investment Act. According to these rules, workforce development boards are not supposed to directly provide services to members of the public. In September 2007, the Wisconsin Department of Workforce Development, the state agency responsible for overseeing area development boards, conducted a routine audit of the Fox Valley board's activities. The audit report criticized the board for providing services through its own subsidiary and recommended an end to the practice.

After the audit, the board was unable to find a qualified bidder to provide the necessary services. As a result, the board scheduled a meeting to discuss the issue with local elected officials. Ziebell learned that her supervisor, the board's executive director, planned to speak at the meeting and recommend that the board continue contracting with the subsidiary. Ziebell thus attended the meeting and tried to create a disturbance to disrupt her supervisor's plan. Despite Ziebell's efforts, the board and local elected officials agreed with her supervisor and decided to continue using Workforce Economics as its contractor.

After the hearing, Ziebell's supervisor and the chief operating officer decided to fire Ziebell. They gave several reasons for doing so, including her disruption at the hearing, an instance in which Ziebell skipped work to play golf and irregularities in her mileage reimbursement forms.

After her discharge, Ziebell claimed that she was retaliated against in violation of the False Claims Act. She claimed that the board's misconduct in contracting to a subsidiary resulted in a false claim against the federal government through its certifications to the government and use of federal funds. At the district court, the board moved for summary judgment to dismiss Ziebell's claims before trial. This motion was granted, and the case was dismissed.

On appeal, the 7th Circuit affirmed the dismissal, finding that Ziebell failed to state the existence of a false claim. The 7th Circuit reasoned that merely because the board did not comply with federal government rules did not mean that it was trying to defraud the government. The 7th Circuit also found that, because Ziebell did not discover the misconduct, she was not protected by the False Claims Act when she complained about it after the audit.

Professional Pointer: The False Claims Act protects employees of local agencies and other government contractors who discover and oppose a fraud against the federal government. Nevertheless, when a compliance issue is discovered by an independent audit and other bases for employee discipline exist, the act does not protect the employee or prevent adverse action.

Jeffrey L. Rhodes is managing partner of the civil division of Albo & Oblon, a business and employment law firm in Arlington, Va.

Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.